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As anyone familiar with the film My Big Fat Greek Wedding will tell you, Greeks know how to throw a good party. But their enthusiasm appears to have got the better of them over the past decade.

After spending freely on public services and pensions, the country faces a widening budget deficit and a €300bn ($405bn) debt pile. Fears among investors that the country might default on that debt spooked markets in February, hijacking a nascent recovery in the global buyout market. But by March, the hangover appeared to be easing.

According to Dealogic, the value of global buyouts declined by almost 35% in the first quarter, to $30.4bn, from $46.3bn in the fourth quarter. But the period remained the second best by deal value since the third quarter of 2008, when Lehman Brothers collapsed.

The first quarter was coloured by volatility in equity, debt and currency markets, as traders reacted bearishly to the difficulties in Greece. That volatility led private equity firms to postpone a series of planned initial public offerings. Blackstone Group shelved the IPO of airline booking company Travelport and UK attractions company Merlin Entertainments in February, while Apax Partners and Permira delayed the float of UK retail company New Look in the same week.

However, buyout firms were back in March, and succeeded in floating a number of companies, including German cable company Kabel Deutschland, backed by Providence Equity Partners, and chemicals company Brenntag, backed by BC Partners. Meanwhile, New Look was touted again as an IPO candidate.

Tom McCaughey, a senior director in leveraged finance at Dutch bank ING, said: “In the first quarter we had a pretty robust start. There was a strong build up in late November to December, but as we rolled in to February the market started to slide. People got a little bit nervous, but then at the end of late February we had a fantastic rally. Markets appear to be going out on a strong note and it was, all in all, a solid quarter.”

Buyouts were supported by an improvement in the market for leveraged buyout loans. LBO issuance rose 19% to $12.9bn in the first quarter from $10.8bn in the previous period, and was up five times by value from the first quarter of 2009, Dealogic said (see below).

The largest buyout of the quarter was the $3.7bn acquisition of US hotel group Extended Stay Hotels by Starwood Capital Group, Five Mile Capital Capital Partners and TPG Capital, which bought the group out of US receivership, according to Dealogic. Other deals included Bain Capital’s $1.6bn buyout of US plastic manufacturer Styron Corporation, Kohlberg Kravis Roberts’ $1.5bn purchase of UK retailer Pets at Home, and the $1.3bn acquisition of a consortium of Malaysian energy company KNM Group by BlueFire Capital Group, GS Capital Partners and Mettiz Capital.

The news from exit markets was mixed. Firms generated $15.8bn from trade sales in the first quarter, up a fifth from the final quarter of last year, according to Dealogic. But secondary buyouts fell by a third to $6.5bn from $9.6bn in the previous quarter, while IPOs slumped 80% to $1.2bn from $5.9bn, Dealogic said.

According to Peter Laib, a managing director at Swiss fund of funds Adveq, fund managers began to see an improvement in portfolio values reported by private equity firms during the fourth quarter.

He said: “Last year the upward valuations in the European portfolios were mainly due to a recovery in public market comparables. In our Asian portfolio we could already observe operational improvements with earnings [before interest, tax, depreciation and amortisation] increasing. Now in the western world we are seeing some companies with operational improvements.”

US venture capital firms in particular have performed strongly, with a number of exits through initial public offerings and mergers and acquisitions, according to Adveq.

Meanwhile, investment banking fees from private equity deals fell to $1.2bn from $1.8bn in the previous quarter, according to Dealogic. However, banks still posted their second-best quarter since the third quarter of 2008, with the fee pot at more than double its $473m nadir in the first quarter of 2009.

Equity capital markets bankers generated the most fees, pulling in $398m, although this was less than half the $817m reaped in the previous quarter, according to Dealogic. Bankers also generated $352m from syndicated loans, $212m from debt capital markets and $271m from mergers and acquisitions.

US buyout giant TPG Capital and Starwood Capital, led by property mogul Barry Sternlicht, have worked together on a pair of key deals in the last six months.

Sternlicht is understood to have known senior people at TPG for nearly 20 years, although the firms had not teamed up on any deals before partnering on two deals in the last two quarters, according to Dealogic.

In the first quarter, the pair partnered Five Mile Capital Partners in the $3.7bn acquisition of US hotel group Extended Stay Hotels. The deal followed the pair’s $554m buyout of US bank Corus Bankshares in the fourth quarter.

TPG declined to comment and Starwood did not respond to a request for comment.

Debt markets near ‘virtuous circle’

In a quarter dominated by nervousness around sovereign debt, investors’ willingness to buy more leveraged loans was a bright spot. Buyout loan issuance rose to $12.9bn in the first quarter from $10.8bn in the previous period.

According to Tom McCaughey, of Dutch financial group ING, the market was boosted by the return of collateralised loan obligations, the structured vehicles that buy leveraged loans. These vehicles benefited from an increase in sales of buyout-owned companies, which gave them money to reinvest.

McCaughey said: “One of the most interesting phenomenons is repayments through refinancing in the high-yield market. A lot of institutions came back with lots of money with a requirement to reinvest in a short period of time.”

Some deals, such as debt sales by Marken and Pets at Home, even managed a so-called “reverse flex”, in which bankers reduce the amount charged on loans, because institutions were clamouring for the debt. He said: “If you had asked people in November whether this would happen, they would have said no.”

He added: “This could become a virtuous circle with good equity and high yield markets leading to proceeds going to these institutions who need to reinvest them.”